Gold and inflation call it quits

Film at 11

After having once again failed at the $1,696 resistance level on Wednesday, gold prices headed lower for a third straight session this morning. In the process, the pivotal 200-day moving average price near the $1,608 level was breached by sellers. Spot gold prices hit an intra-day low of $1,655 per ounce earlier this morning. Silver fell to a low of $31.08 and was last seen trading at $31.30 after a small bounce, but it was still under previous support at $31.50 the ounce.

The principal downward price-moving factors that were identified this week were pretty much of the same flavor as we’ve seen before: improving US economic statistics, and a short-term resolution to the US debt ceiling debacle. On the former front, the markets were treated to numbers that showed a) the lowest level of initial jobless claims filings in five years, and b) the flash manufacturing purchasing managers’ best index reading since March of 2011.

The latest explanation as to why gold once again disappointed today was the one that saw a rise in German business confidence as eroding gold’s safe-haven appeal. Bloomberg News quoted veteran trader Frank Lesh as saying that “The economic conditions are looking up, so people are rethinking about their investments in gold. Equities seem more remunerative than gold at the moment.” It was also reported earlier in the week that US leading economic indicators rose in December at the best clip since the third quarter. A rebound in US real estate and related consumer purchases were behind the metrics.

Midweek wave analysis updates by EW indicated that gold had failed to confirm silver’s rally up to that point and that if prices were to break under the $1,665 support, then lower targets could come into play. As for silver, the EW team opined that with prices having closed higher for eight sessions in a row up to Wednesday, the white metal was (over)due for a decline.

This (still) being January, the string of 2103 gold price forecasts keeps getting longer by the day. Reuters News ran its own survey of speculative market views and came up with several interesting findings the other day. First, the possibility that gold could reach a record high annual average price was floated, based on the tally provided by 37 gold market analysts’ projections.

However, the Reuters 2013 price forecasting survey also noted that gold’s twelve year bull run could be reaching “a plateau” as annual gains become smaller and as expectations that the US central bank’s monetary policies are about to shift, gain traction. On the other hand, the Reuters survey noted that the group of analysts felt that “palladium is expected to set a record average high this year and platinum to post its best price performance in two years as South Africa's supply problems worsen and the economic cycle starts to favour industrial metals.”

Sharps Pixley CEO Ross Norman cautioned that his firm’s “view for gold in 2013 is that unfortunately it will rather look like 2012 with periods of consolidation that will test the patience of the gold bugs and investors.” Such a “leveling off” in gold’s performance may impact some hitherto ardent gold-holding fund managers’ reports to their investors. David Einhorn’s Greenlight Capital was among the first to report just such a paradigm shift.

The hedge fund fell by 4.9% in QIV of 2012 and Mr. Einhorn had to acknowledge that his fund “took some lumps as gold declined, the euro strengthened, credit spreads tightened and European sovereign debt rallied.” Lumps aside, Mr. Einhorn remains bullish on the yellow metal still. Bankers HSBC, on the other hand, not so much. Read on: